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Kentucky First Federal Bancorp - Quarter Report: 2021 March (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

OR

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ____________ to _______________

 

Commission File Number: 0-51176

 

KENTUCKY FIRST FEDERAL BANCORP

(Exact name of registrant as specified in its charter)

 

United States of America   61-1484858
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

655 Main Street, Hazard, Kentucky 41702

(Address of principal executive offices)(Zip Code)

 

(502) 223-1638

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol(s)   Name of each exchange on which registered
Common Stock, $0.01 par value per share   KFFB   The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-Accelerated filer Smaller Reporting Company
    Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At May 7, 2021, the latest practicable date, the Corporation had 8,226,715 shares of $.01 par value common stock outstanding.

 

 

 

 

 

 

INDEX

 

      Page
PART I FINANCIAL INFORMATION 1
       
  ITEM 1 FINANCIAL STATEMENTS 1
       
    Condensed Consolidated Balance Sheets 1
       
    Condensed Consolidated Statements of Operations 2
       
    Condensed Consolidated Statements of Comprehensive Income 3
       
    Consolidated Statements of Changes in Shareholders’ Equity 4
       
    Condensed Consolidated Statements of Cash Flows 6
       
    Notes to Condensed Consolidated Financial Statements 8
       
  ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
       
  ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 38
       
  ITEM 4 Controls and Procedures 38
       
PART II OTHER INFORMATION 39
       
SIGNATURES 41

 

i

 

 

PART I

 

ITEM 1: Financial Statements

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

   March 31,   June 30, 
   2021   2020 
   Unaudited     
ASSETS        
         
Cash and due from financial institutions  $1,724   $1,662 
Fed funds sold   5,001    -- 
Interest-bearing demand deposits   8,042    12,040 
Cash and cash equivalents   14,767    13,702 
           
Time deposits in other financial institutions   247    2,229 
Securities available-for-sale   33    541 
Securities held-to-maturity, at amortized cost- approximate fair value of $508 and $611 at March 31, 2021 and June 30, 2020, respectively   491    598 
Loans held for sale   1,261    667 
Loans, net of allowance of $1,622 and $1,488 at March 31, 2021 and June 30, 2020, respectively   299,190    285,887 
Real estate owned, net   141    640 
Premises and equipment, net   4,766    4,916 
Federal Home Loan Bank stock, at cost   6,498    6,498 
Accrued interest receivable   727    830 
Bank-owned life insurance   2,652    2,594 
Goodwill   947    947 
Prepaid federal income taxes   64    135 
Prepaid expenses and other assets   848    952 
           
Total assets  $332,632   $321,136 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Deposits  $225,543   $212,273 
Federal Home Loan Bank advances   53,193    54,715 
Advances by borrowers for taxes and insurance   560    800 
Accrued interest payable   25    27 
Deferred income taxes   725    837 
Other liabilities   696    573 
Total liabilities   280,742    269,225 
           
Commitments and contingencies        
           
Shareholders’ equity          
Preferred stock, 500,000 shares authorized, $.01 par value; no shares issued and outstanding        
Common stock, 20,000,000 shares authorized, $.01 par value; 8,596,064 shares issued   86    86 
Additional paid-in capital   34,901    34,981 
Retained earnings   20,020    19,932 
Unearned employee stock ownership plan (ESOP), 14,924 shares and 28,931 shares at March 31, 2021 and June 30, 2020, respectively   (149)   (289)
Treasury shares at cost, 369,349 and 342,849 common shares at March 31, 2021 and June 30, 2020, respectively   (2,968)   (2,801)
Accumulated other comprehensive income       2 
Total shareholders’ equity   51,890    51,911 
           
Total liabilities and shareholders’ equity  $332,632   $321,136 

 

See accompanying notes to condensed consolidated financial statements.

 

1

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share data)

 

   Nine months ended
March 31,
   Three months ended
March 31,
 
   2021   2020   2021   2020 
Interest income                
Loans, including fees  $8,835   $9,401   $2,899   $3,104 
Mortgage-backed securities   11    17    3    6 
Other securities   3    14    --    3 
Interest-bearing deposits and other   122    364    38    92 
Total interest income   8,971    9,796    2,940    3,205 
                     
Interest expense                    
Interest-bearing demand deposits   23    16    8    5 
Savings   194    154    69    51 
Certificates of Deposit   1,110    1,654    310    572 
Deposits   1,327    1,824    387    628 
Borrowings   333    927    105    254 
Total interest expense   1,660    2,751    492    882 
Net interest income   7,311    7,045    2,448    2,323 
Provision for loan losses   192    64    --    -- 
Net interest income after provision for loan losses   7,119    6,981    2,448    2,323 
                     
Non-interest income                    
Earnings on bank-owned life insurance   58    58    19    20 
Net gain on sales of loans   280    75    125    35 
Net gain (loss) on sales of real estate owned   (18)   6    --    (1)
Valuation adjustment for real estate owned   (19)   (36)   --    (12)
Other   132    130    38    39 
Total non-interest income   433    233    182    81 
Non-interest expense                    
Employee compensation and benefits   4,027    4,168    1,383    1,400 
Occupancy and equipment   425    420    145    141 
FDIC insurance premiums   129    --    41    -- 
Voice and data communications   80    128    23    28 
Advertising   114    133    38    41 
Outside service fees   139    137    43    43 
Data processing   430    388    138    149 
Auditing and accounting   119    151    40    52 
Franchise and other taxes   130    194    --    65 
Foreclosure and real estate owned expenses (net)   66    57    19    17 
Other   472    540    149    170 
Total non-interest expense   6,131    6,316    2,019    2,106 
                     
Income before income taxes   1,421    898    611    298 
                     
Federal income tax expense   293    176    138    58 
                     
NET INCOME  $1,128   $722   $473   $240 
                     
EARNINGS PER SHARE                    
Basic and diluted  $0.14   $0.09   $0.06   $0.03 
DIVIDENDS PER SHARE  $0.30   $0.30   $0.10   $0.10 

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

   Nine months ended
March 31,
   Three months ended
March 31,
 
   2021   2020   2021   2020 
Net income  $1,128   $722   $473   $240 
                     
Other comprehensive gains (losses), net of tax:                    
Unrealized holding Gains (losses) on securities designated as available-for-sale, net of taxes of $(1), $0, $0 and $0 during the respective periods   (2)   --    --    1 
Comprehensive income  $1,126   $722   $473   $241 

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the nine months ended

(Unaudited)

(Dollar amounts in thousands, except per share data)

 

March 31, 2021

 

   Common
stock
   Additional
paid-in
capital
   Retained
earnings
   Unearned
employee
stock
ownership
plan
(ESOP)
   Treasury
shares
   Accumulated
other
comprehensive
income (loss)
   Total 
Balance at June 30, 2020  $86   $34,981   $19,932   $(289)  $(2,801)  $        2   $51,911 
                                    
Net income           1,128                1,128 
Allocation of ESOP shares       (80)       140            60 
Acquisition of shares for Treasury                   (167)       (167)
Other comprehensive loss                       (2)   (2)
Cash dividends of $0.30 per common share           (1,040)               (1,040)
                                    
Balance at March 31, 2021  $86   $34,901   $20,020   $(149)  $(2,968)  $--   $51,890 

 

March 31, 2020

 

   Common
stock
   Additional
paid-in
capital
   Retained
earnings
   Unearned
employee
stock
ownership
plan
(ESOP)
   Treasury
shares
   Accumulated
other
comprehensive
income
   Total 
Balance at June 30, 2019  $86   $35,056   $33,867   $(476)  $(2,259)  $     4   $66,278 
                                    
Net income           722                722 
Allocation of ESOP shares       (58)       140            82 
Acquisition of shares for treasury                   (475)       (475)
Other comprehensive loss                            
Cash dividends of $0.30 per common share           (1,038)               (1,038)
                                    
Balance at March 31, 2020  $86   $34,998   $33,551   $(336)  $(2,734)  $4   $65,569 

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

Kentucky First Federal Bancorp

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the three months ended

(Unaudited)

(Dollar amounts in thousands, except per share data)

 

March 31, 2021

 

   Common
stock
   Additional
paid-in
capital
   Retained
earnings
   Unearned
employee
stock
ownership
plan
(ESOP)
   Treasury
shares
   Accumulated
other
comprehensive
income
   Total 
Balance at December 31, 2020  $86   $34,948   $19,896   $(196)  $(2,902)  $--   $51,832 
                                    
Net income           473                473 
Allocation of ESOP shares       (47)       47            -- 
Acquisition of shares for Treasury                   (66)       (66)
Cash dividends of $0.10 per common share           (349)               (349)
                                    
Balance at March 31, 2021  $86   $34,901   $20,020   $(149)  $(2,968)  $   $51,890 

 

March 31, 2020

 

   Common
stock
   Additional
paid-in
capital
   Retained
earnings
   Unearned
employee
stock
ownership
plan
(ESOP)
   Treasury
shares
   Accumulated
other
comprehensive
income
   Total 
Balance at December 31, 2019  $86   $35,011   $33,663   $(383)  $(2,571)  $3   $65,809 
                                    
Net income           240                240 
Allocation of ESOP shares       (13)       47            34 
Acquisition of shares for treasury                   (163)       (163)
Other comprehensive income                       1    1 
Cash dividends of $0.10 per common share           (352)               (352)
                                    
Balance at March 31, 2020  $86   $34,998   $33,551   $(336)  $(2,734)  $4   $65,569 

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   Nine months ended
March 31,
 
   2021   2020 
Cash flows from operating activities:        
Net income  $1,128   $722 
Adjustments to reconcile net income to net cash provided by operating activities          
Depreciation   218    205 
Accretion of purchased loan credit discount   (43)   (83)
Amortization of purchased loan premium   26    8 
Amortization of deferred loan origination costs (fees)   (1)   70 
Amortization of premiums on investment securities   7    6 
Net gain on sale of loans   (280)   (75)
Net (gain) loss on sale of real estate owned   18    (6)
Valuation adjustments of real estate owned   19    36 
ESOP compensation expense   60    82 
Earnings on bank-owned life insurance   (58)   (58)
Provision for loan losses   192    64 
Origination of loans held for sale   (6,468)   (2,655)
Proceeds from loans held for sale   6,154    2,170 
Increase (decrease) in cash, due to changes in:          
Accrued interest receivable   103    46 
Prepaid expenses and other assets   104    135 
Accrued interest payable   (2)   5 
Other liabilities   123    99 
Income taxes   (41)   180 
Net cash provided by operating activities   1,259    951 
           
Cash flows from investing activities:          
Purchase of time deposits in other financial institutions   --    (2,500)
Maturities of time deposits in other financial institutions   1,982    6,739 
Securities maturities, prepayments and calls:          
Held to maturity   100    144 
Available for sale   506    500 
Purchase of FHLB stock   --    (16)
Loans originated for investment, net of principal collected   (13,767)   2,062 
Proceeds from sale of real estate owned   753    180 
Additions to real estate owned   (1)   (39)
Additions to premises and equipment, net   (68)   (156)
Net cash provided by (used in) investing activities   (10,495)   6,914 
           
Cash flows from financing activities:          
Net increase in deposits   13,270    12,719 
Payments by borrowers for taxes and insurance, net   (240)   (246)
Proceeds from Federal Home Loan Bank advances   38,600    13,800 
Repayments on Federal Home Loan Bank advances   (40,122)   (25,461)
Treasury stock purchased   (167)   (475)
Dividends paid on common stock   (1,040)   (1,038)
Net cash provided by (used in) financing activities   10,301    (701)
           
Net increase in cash and cash equivalents   1,065    7,164 
           
Beginning cash and cash equivalents   13,702    9,861 
           
Ending cash and cash equivalents  $14,767   $17,025 

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

 

Kentucky First Federal Bancorp

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(In thousands)

 

   Nine months ended
March 31,
 
   2021   2020 
Supplemental disclosure of cash flow information:        
         
Cash paid during the period for:        
         
Federal income taxes  $191   $ 
           
Interest on deposits and borrowings  $1,662   $2,746 
           
Transfers of loans to real estate owned, net  $327   $304 
           
Loans made on sale of real estate owned  $37   $95 

 

See accompanying notes to condensed consolidated financial statements.

 

7

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited)

 

The Kentucky First Federal Bancorp (“Kentucky First” or the “Company”) was incorporated under federal law in March 2005, and is the mid-tier holding company for First Federal Savings and Loan Association of Hazard, Hazard, Kentucky (“First Federal of Hazard”) and Frankfort First Bancorp, Inc. (“Frankfort First”). Frankfort First is the holding company for First Federal Savings Bank of Kentucky, Frankfort, Kentucky (“First Federal of Kentucky”). First Federal of Hazard and First Federal of Kentucky (hereinafter collectively the “Banks”) are Kentucky First’s primary operations, which consist of operating the Banks as two independent, community-oriented savings institutions.

 

In December 2012, the Company acquired CKF Bancorp, Inc., a savings and loan holding company which operated three banking locations in Boyle and Garrard Counties in Kentucky. In accounting for the transaction, the assets and liabilities of CKF Bancorp were recorded on the books of First Federal of Kentucky in accordance with accounting standard ASC 805, Business Combinations.

 

1. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements, which represent the condensed consolidated balance sheets and results of operations of the Company, were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) which are necessary for a fair presentation of the condensed consolidated financial statements have been included. The results of operations for the nine-month period ended March 31, 2021, are not necessarily indicative of the results which may be expected for an entire fiscal year. The condensed consolidated balance sheet as of June 30, 2020 has been derived from the audited consolidated balance sheet as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2020 filed with the Securities and Exchange Commission.

 

Principles of Consolidation - The consolidated financial statements include the accounts of the Company, Frankfort First, and its wholly-owned banking subsidiaries, First Federal of Hazard and First Federal of Kentucky (collectively hereinafter “the Banks”). All intercompany transactions and balances have been eliminated in consolidation.

 

8

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

1. Basis of Presentation (continued)

 

New Accounting Standards

 

FASB ASC 326 - In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The Company will now use forward-looking information to enhance its credit loss estimates. The amendment requires enhanced disclosures to aid investors and other users of financial statements to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of our portfolio. The largest impact to the Company will be on its allowance for loan and lease losses, although the ASU also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The standard is effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2019. However, the FASB has delayed the implementation of the ASU for smaller reporting companies until years beginning after December 15, 2022, or in the Company’s case the fiscal year beginning July 1, 2023. ASU 2016-13 will be applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach), except for debt securities for which an other-than-temporary impairment had been recognized before the effective date. A prospective transition approach is required for these debt securities. We have formed a functional committee that is assessing our data and system needs and are evaluating the impact of adopting the new guidance. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. However, the Company does expect ASU 2016-13 to add complexity and costs to its current credit loss evaluation process.

 

FASB ASC 820 – In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This guidance reduces the level of detail surrounding the processes used by the Company in determining the fair value of some of its assets. The Company adopted this ASU effective July 1, 2020, with no material impact to the financial statements.

 

FASB ASC 740– In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The amendments in this ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes during interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, or July 1, 2021, with respect to the Company. Early adoption is permitted. We do not anticipate a significant impact to our consolidated financial statements.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

9

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

2. Earnings Per Share

 

Diluted earnings per share is computed taking into consideration common shares outstanding and dilutive potential common shares to be issued or released under the Company’s share-based compensation plans. The factors used in the basic and diluted earnings per share computations follow:

 

   Nine months ended
March 31,
   Three months ended
March 31,
 
(in thousands)   2021   2020   2021   2020 
Net income allocated to common shareholders, basic and diluted  $1,128   $722   $473   $240 

 

   Nine months ended
March 31,
   Three months ended
March 31,
 
   2021   2020   2021   2020 
Weighted average common shares outstanding, basic and diluted   8,217,654    8,259,807    8,211,789    8,246,574 

 

There were no stock option shares outstanding for the nine- or three-month periods ended March 31, 2021 and 2020.

 

3. Investment Securities

 

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at March 31, 2021 and June 30, 2020, the corresponding amounts of gross unrealized gains recognized in accumulated other comprehensive income and gross unrecognized gains and losses:

 

   March 31, 2021 
(in thousands)  Amortized cost   Gross unrealized/ unrecognized
gains
   Gross unrealized/ unrecognized
losses
   Estimated fair value 
Available-for-sale Securities                
Agency mortgage-backed: residential  $33   $   $      –   $33 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $491   $20   $3   $508 

 

   June 30, 2020 
(in thousands)  Amortized cost   Gross unrealized/ unrecognized
gains
   Gross unrealized/ unrecognized
losses
   Estimated fair value 
Available-for-sale Securities                
Agency bonds  $500   $3   $       –   $503 
Agency mortgage-backed: residential   38            38 
   $538   $3   $   $541 
                     
Held-to-maturity Securities                    
Agency mortgage-backed: residential  $598   $16   $3   $611 

 

10

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

3. Investment Securities (continued)

 

Our pledged securities (including overnight and time deposits in other financial institutions) totaled $1.8 million and $1.9 million at March 31, 2021 and June 30, 2020, respectively.

 

We evaluated securities in unrealized loss positions for evidence of other-than-temporary impairment, considering duration, severity, financial condition of the issuer, our intention to sell or requirement to sell. Those securities were agency mortgage-backed securities, which carry a very limited amount of risk. Also, we have no intention to sell nor feel that we will be compelled to sell such securities before maturity. Based on our evaluation, no impairment has been recognized through earnings.

 

4. Loans receivable

 

The composition of the loan portfolio was as follows:

 

   March 31,   June 30, 
(in thousands)  2021   2020 
Residential real estate        
One- to four-family  $222,878   $222,489 
Multi-family   19,773    12,373 
Construction   5,959    4,045 
Land   1,286    765 
Farm   2,217    2,354 
Nonresidential real estate   37,884    33,503 
Commercial nonmortgage   2,082    2,214 
Consumer and other:          
Loans on deposits   1,126    1,245 
Home equity   7,004    7,645 
Automobile   75    67 
Unsecured   528    675 
    300,812    287,375 
Allowance for loan losses   (1,622)   (1,488)
   $299,190   $285,887 

 

11

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2021:

 

(in thousands)  Beginning balance   Provision for loan losses   Loans charged off   Recoveries   Ending balance 
Residential real estate:                    
One- to four-family  $671   $(3)  $(23)  $         –   $645 
Multi-family   184    96            280 
Construction   6    3            9 
Land   1    1            2 
Farm   4    --            4 
Nonresidential real estate   405    61            466 
Commercial nonmortgage   3    --            3 
Consumer and other:                         
Loans on deposits   2                2 
Home equity   11    37    (45)   7    10 
Automobile                    
Unsecured   1    (3)       3    1 
Unallocated   200                200 
Totals  $1,488   $192   $(68)  $10   $1,622 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021:

 

(in thousands)  Beginning balance   Provision for loan losses   Loans charged off   Recoveries   Ending balance 
Residential real estate:                    
One- to four-family  $647   $(2)  $      --   $           –   $645 
Multi-family   277    3            280 
Construction   6    3            9 
Land   2    --            2 
Farm   5    (1)           4 
Nonresidential real estate   469    (3)           466 
Commercial nonmortgage   2    1            3 
Consumer and other:                         
Loans on deposits   2    --            2 
Home equity   11    (1)           10 
Automobile                    
Unsecured   1    --        --    1 
Unallocated   200                200 
Totals  $1,622   $--   $--   $--   $1,622 

 

12

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2020:

 

(in thousands)  Beginning balance   Provision for loan losses   Loans charged off   Recoveries   Ending balance 
Residential real estate:                    
One- to four-family  $685   $59   $(65)  $         1   $680 
Multi-family   200    (31)           169 
Construction   6    1            7 
Land   1    1            2 
Farm   6    (2)           4 
Nonresidential real estate   336    32            368 
Commercial nonmortgage   5    (2)           3 
Consumer and other:                         
Loans on deposits   3    (1)           2 
Home equity   14    (2)           12 
Automobile       8    (8)        
Unsecured       1            1 
Unallocated   200                200 
Totals  $1,456   $64   $(73)  $1   $1,448 

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2020:

 

(in thousands)  Beginning balance   Provision for loan losses   Loans
charged off
   Recoveries   Ending balance 
Residential real estate:                    
One- to four-family  $684   $(5)  $   $         1   $680 
Multi-family   172    (3)           169 
Construction   6    1            7 
Land   2    --            2 
Farm   4    --            4 
Nonresidential real estate   361    7            368 
Commercial nonmortgage   4    (1)           3 
Consumer and other:                         
Loans on deposits   2                2 
Home equity   11    1            12 
Automobile       --    --         
Unsecured   1    --            1 
Unallocated   200                200 
Totals  $1,447   $--   $--   $1   $1,448 

 

13

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of March 31, 2021. The recorded investment in loans excludes accrued interest receivable due to immateriality.

 

March 31, 2021:

 

(in thousands)  Loans individually evaluated   Loans acquired with deteriorated credit quality   Unpaid principal balance
and recorded investment
   Ending allowance attributed to loans   Unallocated allowance   Total allowance 
Loans individually evaluated for impairment:                        
Residential real estate:                        
One- to four-family  $3,903   $667   $4,570   $   $   $ 
Multi-family   652        652             
Farm   290        290             
Nonresidential real estate   636        636             
Consumer:                              
Unsecured   17    --    17    --    --    -- 
    5,498    667    6,165             
                               
Loans collectively evaluated for impairment:                              
Residential real estate:                              
One- to four-family            $218,308   $645   $   $645 
Multi-family             19,121    280        280 
Construction             5,959    9        9 
Land             1,286    2        2 
Farm             1,927    4        4 
Nonresidential real estate             37,248    466        466 
Commercial nonmortgage             2,082    3        3 
Consumer:                              
Loans on deposits             1,126    2        2 
Home equity             7,004    10        10 
Automobile             75             
Unsecured             511    1        1 
Unallocated                     200    200 
              294,647    1,422    200    1,622 
             $300,812   $1,422   $200   $1,622 

 

14

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of June 30, 2020.

 

June 30, 2020:

 

(in thousands)  Loans individually evaluated   Loans acquired with deteriorated credit quality   Unpaid principal balance
and recorded investment
   Ending allowance attributed to loans   Unallocated allowance   Total allowance 
Loans individually evaluated for impairment:                        
Residential real estate:                        
One- to four-family  $3,983   $751   $4,734   $   $   $ 
Multi-family   671        671             
Construction   63        63             
Farm   309        309             
Nonresidential real estate   660        660             
    5,686    751    6,437             
                               
Loans collectively evaluated for impairment:                              
Residential real estate:                              
One- to four-family            $217,755   $671   $   $671 
Multi-family             11,702    184        184 
Construction             3,982    6        6 
Land             765    1        1 
Farm             2,045    4        4 
Nonresidential real estate             32,843    405        405 
Commercial nonmortgage             2,214    3        3 
Consumer:                              
Loans on deposits             1,245    2        2 
Home equity             7,645    11        11 
Automobile             67             
Unsecured             675    1        1 
Unallocated                     200    200 
              280,938    1,288    200    1,488 
             $287,375   $1,288   $200   $1,488 

 

15

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents interest income on loans individually evaluated for impairment by class of loans for the nine months ended March 31:

 

(in thousands)  Average
Recorded
Investment
   Interest
Income
Recognized
   Cash Basis
Income
Recognized
   Average
Recorded
Investment
   Interest
Income
Recognized
   Cash Basis
Income
Recognized
 
   2021   2020 
With no related allowance recorded:                     
One- to four-family  $3,941   $120   $120   $3,866   $74   $74 
Multi-family   662    18    18    681    25    25 
Construction   32                     
Farm   300    23    23    310    11    11 
Nonresidential real estate   648    24    24    698    23    23 
Consumer and other   9    --    --    --    --    -- 
Purchased credit-impaired loans   709    40    40    859    60    60 
    6,301    225    225    6,413    193    193 
With an allowance recorded:                              
One- to four-family                        
   $6,301   $225   $225   $6,413   $193   $193 

 

The following table presents interest income on loans individually evaluated for impairment by class of loans for the three months ended March 31:

 

(in thousands)  Average Recorded Investment   Interest
Income Recognized
   Cash Basis Income Recognized   Average Recorded Investment   Interest
Income
Recognized
   Cash Basis Income Recognized 
   2021   2020 
With no related allowance recorded:                     
Residential real estate:                              
One- to four-family  $3,971   $36   $36   $3,951   $12   $12 
Multi-family   655    6    6    680    8    8 
Farm   291    --    --    310    6    6 
Nonresidential real estate   641    17    17    717    9    9 
Consumer and other   9    --    --    --    --    -- 
Purchased credit-impaired loans   676    16    16    846    25    25 
    6,243    75    75    6,503    60    60 
With an allowance recorded:                              
One- to four-family                        
   $6,243   $75   $75   $6,503   $60   $60 

 

16

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2021 and June 30, 2020:

 

   March 31, 2021   June 30, 2020 
(in thousands)  Nonaccrual  

Loans

Past Due Over
90 Days Still
Accruing

   Nonaccrual   Loans
Past Due Over
90 Days Still
Accruing
 
Residential real estate:                
One- to four-family residential real estate  $4,339   $248   $4,458   $1,135 
Multifamily   652        671     
Construction   --        63     
Farm   290        309     
Nonresidential real estate and land   636        660     
Commercial and industrial           4     
Consumer   22    19    95     
   $5,939   $267   $6,260   $1,135 

 

One- to four-family loans in process of foreclosure totaled $649,000 and $694,000 at March 31, 2021 and June 30, 2020, respectively.

 

Troubled Debt Restructurings:

 

A Troubled Debt Restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Banks would not otherwise have considered due to the borrower’s financial difficulties. All TDRs are considered “impaired.”

 

The provisions of the CARES Act included an election to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) March 31, 2021 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. In December 2020, Congress amended the CARES Act through the Consolidated Appropriation Act of 2021, which provided additional COVID-19 relief to American families and businesses, including extending TDR relief under the CARES Act until the earlier of December 31, 2021 or 60 days following the termination of the national emergency. The Company elected to adopt these provisions of the CARES Act. As of March 31, 2021, the Banks had granted deferrals to 101 loans totaling $18.4 million. One borrower who owed $859,000 at March 31, 2021, had been granted an additional extension and returned to normal payment status in April 2021. All other borrowers granted a deferral, composed of 100 loans totaling $17.5 million in principal had resumed regular payments at March 31, 2021.

 

At March 31, 2021 and June 30, 2020, the Company had $1.9 million and $1.9 million of loans classified as TDRs, respectively. Of the TDRs at March 31, 2021, approximately 29.4% were related to the borrower’s completion of Chapter 7 bankruptcy proceedings with no reaffirmation of the debt to the Banks.

 

During the nine months ended March 31, 2021, the Company had two loans, which were associated with a single borrower and were both secured by a single-family residence, restructured as TDRs. The loans were classified as TDRs pursuant to court action under Chapter 7 bankruptcy proceedings without the borrower reaffirming the debt personally, and totaled $143,000 at March 31, 2021, and were current on payments as of that date.

 

17

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

4. Loans receivable (continued)

 

During the nine months ended March 31, 2020, the Company had three loans restructured as TDRs. One borrower refinanced a piece of one- to four-family, non-owner occupied, residential property to bring to current amounts owed on other loans with the Bank. Because the borrower’s financial condition had deteriorated, it was unlikely that the borrower could have secured financing elsewhere. The restructured loan is collateralized and cross-collateralized by real estate. Another single-family residential borrower filed for Chapter 7 bankruptcy protection and did not reaffirm the debt personally, although the Company’s collateral position remains intact. Finally, a first and second mortgage on an 8-plex were refinanced into a single loan with a slightly extended maturity term and a lower interest rate, which was consistent with similarly-priced comparable loans at the time of refinance.

 

The following table summarizes TDR loan modifications that occurred during the nine months ended March 31, 2021 and 2020, and their performance, by modification type:

 

(in thousands)  Troubled Debt
Restructurings
Performing to
Modified
Terms
   Troubled Debt
Restructurings
Not
Performing to
Modified
Terms
   Total
Troubled Debt
Restructurings
 
Nine months ended March 31, 2021            
Residential real estate:            
Chapter 7 bankruptcy  $143   $   $143 
                
Nine months ended March 31, 2020               
Residential real estate:               
Terms extended  $677   $   $677 
Terms extended and additional funds advanced  $119   $   $119 
Chapter 7 bankruptcy  $21   $   $21 

 

No TDRs defaulted during the nine-month periods ended March 31, 2021 or 2020.

 

There were no TDR loan modifications that occurred during the three months ended March 31, 2021 and 2020.

 

18

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

4. Loans receivable (continued)

 

The following table presents the aging of the principal balance outstanding in past due loans as of March 31, 2021, by class of loans:

 

(in thousands)  30-89 Days
Past Due
   90 Days or
Greater
Past Due
   Total Past
Due
   Loans Not
Past Due
   Total 
Residential real estate:                    
One-to four-family  $2,162   $1,582   $3,744   $219,134   $222,878 
Multi-family               19,773    19,773 
Construction   --    --    --    5,959    5,959 
Land               1,286    1,286 
Farm   102        102    2,115    2,217 
Nonresidential real estate   99    245    344    37,540    37,884 
Commercial non-mortgage               2,082    2,082 
Consumer and other:                         
Loans on deposits               1,126    1,126 
Home equity   176    19    195    6,809    7,004 
Automobile   --        --    75    75 
Unsecured   76        76    452    528 
Total  $2,615   $1,846   $4,461   $296,351   $300,812 

 

The following tables present the aging of the principal balance outstanding in past due loans as of June 30, 2020, by class of loans:

 

(in thousands)  30-89 Days
Past Due
   90 Days or
Greater
Past Due
   Total Past
Due
   Loans Not
Past Due
   Total 
Residential real estate:                    
One-to four-family  $2,546   $2,670   $5,216   $217,273   $222,489 
Multi-family               12,373    12,373 
Construction   192    63    255    3,790    4,045 
Land               765    765 
Farm   107    309    416    1,938    2,354 
Nonresidential real estate   57    253    310    33,193    33,503 
Commercial nonmortgage               2,214    2,214 
Consumer:                         
Loans on deposits               1,245    1,245 
Home equity   255    90    345    7,300    7,645 
Automobile               67    67 
Unsecured               675    675 
Total  $3,157   $3,385   $6,542   $280,833   $287,375 

 

19

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2021
(unaudited)

 

4. Loans receivable (continued)

 

Credit Quality Indicators:

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings:

 

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed that are not rated are included in groups of homogeneous loans and are evaluated for credit quality based on performing status. See the aging of past due loan table above. As of March 31, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 

(in thousands)  Pass   Special
Mention
   Substandard   Doubtful 
Residential real estate:                
One- to four-family  $215,885   $677   $6,316   $ 
Multi-family   19,121        652     
Construction   5,959        --     
Land   1,286             
Farm   1,927        290     
Nonresidential real estate   35,861    931    1,092     
Commercial nonmortgage   2,082             
Consumer:                    
Loans on deposits   1,126             
Home equity   6,929    40    35     
Automobile   75             
Unsecured   522        6     
   $290,773   $1,648   $8,391   $ 

 

20

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2021
(unaudited)

 

4. Loans receivable (continued)

 

At June 30, 2020, the risk category of loans by class of loans was as follows:

 

(in thousands)  Pass   Special
Mention
   Substandard   Doubtful 
Residential real estate:                
One- to four-family  $215,010   $742   $6,737   $ 
Multi-family   11,702        671     
Construction   3,982        63     
Land   765             
Farm   2,045        309     
Nonresidential real estate   31,529    939    1,035     
Commercial nonmortgage   2,188        26     
Consumer:                    
Loans on deposits   1,245             
Home equity   7,505    39    101     
Automobile   67             
Unsecured   670        5     
   $276,708   $1,720   $8,947   $ 

 

Purchased Credit Impaired Loans:

 

The Company purchased loans during fiscal year 2013 for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans, net of a purchase credit discount of $351,000 and $351,000 at March 31, 2021 and June 30, 2020, respectively, is as follows:

 

(in thousands)  March 31,
2021
   June 30,
2020
 
One- to four-family residential real estate  $667   $751 
           

 

21

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

4. Loans receivable (continued)

 

Accretable yield, or income expected to be collected, is as follows:

 

(in thousands)  Nine months
ended
March 31,
2021
   Twelve months
ended
June 30,
2020
 
Balance at beginning of period  $447   $544 
Accretion of income   (43)   (97)
Disposals, net of recoveries        
Balance at end of period  $404   $447 

 

For those purchased loans disclosed above, the Company made no increase in allowance for loan losses for the year ended June 30, 2020, nor for the nine-month period ended March 31, 2021. Neither were any allowance for loan losses reversed during those periods.

 

5. Disclosures About Fair Value of Assets and Liabilities

 

ASC topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (exit price) at the measurement date. ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes six levels of inputs that may be used to measure fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

Securities

 

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics. Level 2 securities include agency mortgage-backed securities and agency bonds.

 

22

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

5. Disclosures About Fair Value of Assets and Liabilities (continued)

 

Impaired Loans

 

At the time a loan is considered impaired, it is evaluated for loss based on the fair value of collateral securing the loan if the loan is collateral dependent. If a loss is identified, a specific allocation will be established as part of the allowance for loan losses such that the loan’s net carrying value is at its estimated fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

Other Real Estate

 

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

 

Financial assets measured at fair value on a recurring basis are summarized below:

 

   Fair Value Measurements Using 
(in thousands)  Fair Value   Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
March 31, 2021                
Agency mortgage-backed: residential  $33   $   $33   $ 
                     
June 30, 2020                    
Agency bonds  $503   $   $503   $ 
Agency mortgage-backed: residential   38        38     
   $541   $   $541   $ 

 

23

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

5. Disclosures About Fair Value of Assets and Liabilities (continued)

 

Assets measured at fair value on a non-recurring basis are summarized below:

 

   Fair Value Measurements Using 
(in thousands)  Fair Value   Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
                 
June 30, 2020                
Other real estate owned, net                    
One- to four-family  $465   $    –   $      –   $465 

 

There were no impaired loans, which were measured using the fair value of the collateral for collateral-dependent loans, at March 31, 2021, or at June 30, 2020. Amounts charged off related to the resolution of impaired loans were $45,000 for the nine-month period ended March 31, 2021 and $9,000 off for the nine-month period ended March 31, 2020.

 

Other real estate owned (“OREO”) was written down $19,000 and $0 during the nine- and three-months ended March 31, 2020. One single-family residential property, which was held as OREO and was written down by $19,000 during the nine months ended March 31, 2021, was sold during the period. There was no OREO measured at fair value less costs to sell at March 31, 2021.

 

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2020:

 

             Range
   Fair Value   Valuation  Unobservable  (Weighted
   (in thousands)   Technique(s)  Input(s)  Average)
Foreclosed and repossessed assets:         
One- to four-family  $465   Sales comparison approach  Adjustments for differences between
comparable sales
  -2.7% to 41.2% (20.4%)

 

24

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

5. Disclosures About Fair Value of Assets and Liabilities (continued)

 

The following is a disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods.

 

The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments.

 

Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at March 31, 2021 and June 30, 2020 are as follows:

 

       Fair Value Measurements at 
   Carrying   March 31, 2021 Using 
(in thousands)  Value   Level 1   Level 2   Level 3   Total 
Financial assets                         
Cash and cash equivalents  $14,767   $14,767             $14,767 
Time deposits in other financial institutions   247    249              249 
Available-for-sale securities   33        $33         33 
Held-to-maturity securities   491         508         508 
Loans held for sale   1,261             $1,310    1,310 
Loans receivable - net   299,190              309,608    309,608 
Federal Home Loan Bank stock   6,498                   n/a 
Accrued interest receivable   727         727         727 
                          
Financial liabilities                         
Deposits  $225,543   $101,627   $124,445         226,072 
Federal Home Loan Bank advances   53,193         53,692         53,692 
Advances by borrowers for taxes and insurance   560         560         560 
Accrued interest payable   25         25         25 

 

       Fair Value Measurements at 
   Carrying   June 30, 2020 Using 
(in thousands)  Value   Level 1   Level 2   Level 3   Total 
Financial assets                         
Cash and cash equivalents  $13,702   $13,702             $13,702 
Term deposits in other financial institutions   2,229    2,252              2,252 
Available-for-sale securities   541        $541         541 
Held-to-maturity securities   598         611         611 
Loans held for sale   667         685         685 
Loans receivable – net   285,887             $295,431    295,431 
Federal Home Loan Bank stock   6,498                   n/a 
Accrued interest receivable   830         830         830 
                          
Financial liabilities                         
Deposits  $212,273   $78,118   $135,000        $213,118 
Federal Home Loan Bank advances   54,715         55,416         55,416 
Advances by borrowers for taxes and insurance   800         800         800 
Accrued interest payable   27         27         27 

 

25

 

 

Kentucky First Federal Bancorp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2021

(unaudited)

 

6. Other Comprehensive Income (Loss)

 

The Company’s other comprehensive income is comprised solely of unrealized gains and losses on available-for-sale securities. The following is a summary of the accumulated other comprehensive income balances, net of tax:

 

   Nine months ended
March 31,
2021
 
Beginning balance  $2 
Current year change   (2)
Ending balance  $ 

 

Other comprehensive income (loss) components and related tax effects for the periods indicated were as follows:

 

   Nine months ended
March 31,
 
(in thousands)  2021   2020 
Unrealized holding gains (losses) on available-for-sale securities  $(3)  $-- 
Tax effect   1     
Net-of-tax amount  $(2)  $-- 

 

   Three months ended
March 31,
 
(in thousands)  2021   2020 
Unrealized holding gains (losses) on available-for-sale securities  $--   $1 
Tax effect   --     
Net-of-tax amount  $--   $1 

 

26

 

 

Kentucky First Federal Bancorp
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to Kentucky First Federal Bancorp or its management are intended to identify such forward-looking statements. Kentucky First Federal Bancorp’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, prices for real estate in the Company’s market areas, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, rapidly changing technology affecting financial services, the potential effects of the COVID-19 pandemic on the local and national economic environment, on our customers and on our operations (as well as any changes to federal, state and local government laws, regulations and orders in connection with the pandemic), and the other matters mentioned in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. Except as required by applicable law or regulation, the Company does not undertake the responsibility, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

 

27

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Average Balance Sheets

 

The following table represents the average balance sheets for the nine month periods ended March 31, 2021 and 2020, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

 

   Nine Months Ended March 31, 
   2021   2020 
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Interest-earning assets:                        
Loans 1  $294,765   $8,835    4.00%  $282,101   $9,401    4.44%
Mortgage-backed securities   586    11    2.50    727    17    3.12 
Other securities   132    3    3.03    725    14    2.58 
Other interest-earning assets   21,646    122    0.75    21,992    364    2.21 
Total interest-earning assets   317,129    8,971    3.77    305,545    9,796    4.27 
                               
Less: Allowance for loan losses   (1,552)             (1,445)          
Non-interest-earning assets   12,234              26,080           
Total assets  $327,811             $330,180           
                               
Interest-bearing liabilities:                              
Demand deposits  $17,871   $23    0.17%  $13,982   $16    0.15%
Savings   62,674    194    0.41    50,331    154    0.41 
Certificates of deposit   128,343    1,110    1.15    130,379    1,654    1.69 
Total deposits   208,888    1,327    0.85    194,692    1,824    1.25 
Borrowings   55,160    333    0.81    61,176    927    2.02 
Total interest-bearing liabilities   264,048    1,660    0.84    255,868    2,751    1.43 
                               
Noninterest-bearing demand deposits   9,817              6,430           
Noninterest-bearing liabilities   2,035              1,844           
Total liabilities   275,900              264,142           
                               
Shareholders’ equity   51,911              66,038           
Total liabilities and shareholders’ equity  $327,811             $330,180           
Net interest spread       $7,311    2.93%       $7,045    2.84%
Net interest margin             3.07%             3.07%
Average interest-earning assets to average interest-bearing liabilities             120.10%             119.42%

 

 

1 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status.

 

28

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Average Balance Sheets

 

The following table represents the average balance sheets for the three-month periods ended March 31, 2021 and 2020, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

 

   Three Months Ended March 31, 
   2021   2020 
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
   Average
Balance
   Interest
And
Dividends
   Yield/
Cost
 
   (Dollars in thousands) 
Interest-earning assets:                        
Loans 1  $298,828   $2,899    3.88%  $281,881   $3,104    4.41%
Mortgage-backed securities   550    3    2.18    678    6    3.54 
Other securities   --    --    --    504    3    2.38 
Other interest-earning assets   22,270    38    0.68    22,573    92    1.63 
Total interest-earning assets   321,648    2,940    3.66    305,636    3,205    4.20 
                               
Less: Allowance for loan losses   (1,622)             (1,448)          
Non-interest-earning assets   11,619              26,009           
Total assets  $331,645             $330,197           
                               
Interest-bearing liabilities:                              
Demand deposits  $18,567   $8    0.17%  $13,532   $5    0.15%
Savings   67,532    69    0.41    50,021    51    0.41 
Certificates of deposit   123,975    310    1.00    134,874    572    1.70 
Total deposits   210,074    387    0.74    198,427    628    1.27 
Borrowings   56,998    105    0.74    57,304    254    1.77 
Total interest-bearing liabilities   267,072    492    0.74    255,731    882    1.38 
                               
Noninterest-bearing demand deposits   11,181              7,068           
Noninterest-bearing liabilities   1,586              1,586           
Total liabilities   279,839              264,385           
                               
Shareholders’ equity   51,806              65,812           
Total liabilities and shareholders’ equity  $331,645             $330,197           
Net interest spread       $2,448    2.92%       $2,323    2.82%
Net interest margin             3.04%             3.04%
Average interest-earning assets to average interest-bearing liabilities             120.44%             119.52%

 

 

1 Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. Also includes loans on nonaccrual status.

 

29

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2020 to March 31, 2021

 

Risks and Uncertainties Related to COVID-19- In March 2020 the World Health Organization determined that the spread of a new coronavirus, COVID-19, had risen to such a level as to constitute a worldwide pandemic. The spread of this virus has created a global public health crisis. Uncertainty related to the effects of the virus have disrupted financial markets, activity in all aspects of life including governmental, business and consumer routines and the markets in which the Company operates. In response to the crisis governmental authorities closed or limited the operations of many non-essential businesses and required various responses from individuals including stay-at-home restrictions and social distancing. These governmental restrictions, along with a fear of contracting the virus, have resulted in severe reduction of commercial and consumer activity, which is resulting in loss of revenues by businesses, a dramatic spike in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains and market volatility.

 

Management continues to monitor the general impact of COVID-19, as well as certain provisions of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, enacted on March 27, 2020, and other more recent legislative and regulatory relief efforts including the Consolidated Appropriations Act, 2021. Because the impact is contingent upon the duration and severity of the economic downturn, management cannot determine or estimate the magnitude of the impact at this time. While the pandemic has affected the physical operations of the Banks, the business has been mostly unchanged with consistent levels of consumer transactions and loan originations. The potential for a deterioration in asset quality remains, but actual asset quality has improved. Classified assets at March 31, 2021, totaled $8.5 million compared to $10.5 million at March 31, 2020. Management attributes some of this improved performance to the overall strengthening in the residential real estate market. Approximately 95% of the Company’s loans are secured by residential real estate.

 

Business Continuity, Processes and Controls

 

As a financial institution, the Banks are considered essential businesses and have remained open for business. We have implemented our pandemic preparedness plan and have maintained regular business hours except for closing for business on Fridays at 4:30 p.m. We continue to offer customer service through drive-thru facilities, automated teller machines, remote deposit capture and online and mobile banking applications. We are offering by-appointment options for transactions requiring in-person contact while maintaining social distancing mandates and surface cleaning protocols. Our staff is practicing recommended personal hygiene protocols and social distancing while working on premises. A small number of employees are working remotely. We do not face current material resource constraints through the implementation of our pandemic preparedness plan and do not anticipate incurring any material cost related to its implementation. We have not identified any material operational or internal control challenges or risks, nor do we anticipate any significant challenges to our ability to maintain our systems and controls, related to operational changes resulting from implementation of the pandemic preparedness plan.

 

30

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2020 to March 31, 2021 (continued)

 

Financial Position and Results of Operations

 

Bank regulators have issued guidance and are encouraging banks to work with customers affected by COVID-19. Accordingly, we have been actively working with borrowers affected by COVID-19 by offering a payment deferral program providing for either a three-month interest-only period or a full payment deferral for three months. While interest and fees will continue to accrue to income, under normal GAAP accounting if eventual credit losses on these deferred payments emerge, interest and/or fee income accrued may need to be reversed. As a result, interest income in future periods could be negatively impacted. At this time management anticipates that the deferral program will have an immaterial impact to the Company’s financial condition and results of operation, while recognizing that a sustained negative economic impact from COVID-19 could change this assessment, as borrowers’ ability to repay is impacted in future periods.

 

At March 31, 2021 the Company and the Banks were considered well-capitalized with capital ratios in excess of regulatory requirements. However, an extended economic recession resulting from the COVID-19 pandemic could adversely impact the Company’s and the Banks’ capital position and regulatory capital ratios due to a potential increase in credit losses.

 

Lending Operations and Credit Risk

 

As noted herein the Company is working with its borrowers who are negatively impacted by COVID-19 by offering a payment deferral program. As of March 31, 2021, we had borrowers with 101 loans avail themselves of our payment deferral program with a total principal balance of $18.4 million in loans modified. One borrower with outstanding principal of $859,000 had been granted an additional extension and returned to regular paying status in April 2021. All other borrowers granted a deferral, composed of 100 loans totaling $17.5 million in principal had resumed regular payments.

 

The CARES Act and subsequent Consolidated Appropriations Act, 2021, includes a Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”) and is designed to aid small- and medium-sized businesses through federally-guaranteed loans disbursed through banks. These loans are intended to provide eight weeks of payroll and other costs to assist those businesses to either remain open or to re-open quickly and allow their workers to pay their bills. First Federal of Kentucky qualified as an SBA lender to assist the small business community in securing this important funding. As of March 31, 2021, First Federal of Kentucky had approved and closed with the SBA 73 PPP loans representing $2.6 million in funding. Of those loans a total of 28 loans aggregating $1.2 million had been repaid at the end of the period. It is our understanding that loans funded through the PPP are fully guaranteed by the United States government. Should those circumstances change, the bank could be required to increase its allowance for loan and lease losses related to these loans resulting in an increase in the provision for loan and lease losses.

 

The Banks are prepared to continue to offer short-term assistance in accordance with regulatory guidelines. Management continues to identify and monitor weaknesses in the loan portfolio resulting from fallout from the pandemic. On a portfolio level, management continues to monitor aggregate exposures to highly sensitive segments such as residential rental properties for changes in asset quality and payment performance. Management also monitors unfunded commitments such as lines of credit and overdraft protection to determine liquidity and funding issues that may arise with our customers. If economic conditions worsen, the Company could need to increase its required allowance for loan losses through additional provisions for loan losses. It is possible that the Company’s asset quality metrics could be materially and adversely impacted in future periods, if the effects of COVID-19 are prolonged.

 

31

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2020 to March 31, 2021 (continued)

 

Assets: At March 31, 2021, the Company’s assets totaled $332.6 million, an increase of $11.5 million, or 3.6%, from total assets at June 30, 2020. This increase was attributed primarily to an increase in loans, net.

 

Cash and cash equivalents: Cash and cash equivalents increased $1.1 million or 7.8% to $14.8 million at March 31, 2021. Most of the Company’s cash and cash equivalents are held in interest-bearing demand deposits.

 

Time deposits in other financial institutions: Time deposits in other financial institutions decreased by $2.0 million or 88.9% to $247,000 at March 31, 2021. As short-term time deposits matured the funds were used to repay FHLB advances, reinvested at the highest earning level possible or simply carried as interest-bearing demand deposits.

 

Investment securities: At March 31, 2021, our securities portfolio consisted of mortgage-backed securities. Investment securities decreased $615,000 or 54.0% to $524,000 at March 31, 2021.

 

Loans: Loans receivable, net, increased by $13.3 million or 4.7% to $299.2 million at March 31, 2021. Management continues to look for high-quality loans to add to its portfolio and will continue to emphasize loan originations to the extent that it is profitable, prudent and consistent with our interest rate risk strategies.

 

Non-Performing and Classified Loans: At March 31, 2021, the Company had non-performing loans (loans 90 or more days past due or on nonaccrual status) of approximately $6.2 million, or 2.1% of total loans (including acquired loans), compared to $7.4 million or 2.6%, of total loans at June 30, 2020. The Company’s allowance for loan losses totaled $1.6 million and $1.5 million at March 31, 2021 and June 30, 2020, respectively. The allowance for loan losses at March 31, 2021, represented 26.1% of nonperforming loans and 0.5% of total loans (including acquired loans), while at June 30, 2020, the allowance represented 20.1% of nonperforming loans and 0.5% of total loans.

 

The Company had $8.5 million in assets classified as substandard for regulatory purposes at March 31, 2021, including loans ($8.4 million), loans acquired in the CKF Bancorp transaction and real estate owned (“REO”) ($141,000.) Classified loans as a percentage of total loans (including loans acquired) was 2.8% and 3.1% at March 31, 2021 and June 30, 2020, respectively. Of substandard loans, 100.0% were secured by real estate on which the Banks have priority lien position.

 

The table below shows the aggregate amounts of our assets classified for regulatory purposes at the dates indicated:

 

(dollars in thousands)  March 31,
2021
   June 30,
2020
 
Substandard assets  $8,532   $9,587 
Doubtful assets        
Loss assets        
Total classified assets  $8,532   $9,587 

 

At March 31, 2021, the Company’s real estate acquired through foreclosure represented 1.7% of substandard assets compared to 6.7% at June 30, 2020. During the periods presented the Company made one loan totaling $37,000 to facilitate the purchase of its other real estate owned by qualified buyers. Loans to facilitate the sale of other real estate owned, which were included in substandard loans, totaled $44,000 and $23,000 at March 31, 2021 and June 30, 2020, respectively.

 

32

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Discussion of Financial Condition Changes from June 30, 2020 to March 31, 2021 (continued)

 

The following table presents the aggregate carrying value of REO at the dates indicated:

 

   March 31, 2021   June 30, 2020 
   Number
of
Properties
   Net
Carrying
Value
   Number
of
Properties
   Net
Carrying
Value
 
One- to four-family   3   $141    5   $640 
Building lot   1        1     
Total REO   4   $141    6   $640 

 

At March 31, 2021 and June 30, 2020, the Company had $1.6 million and $1.7 million of loans classified as special mention, respectively (including loans acquired in the CKF Bancorp transaction on December 31, 2012). This category includes assets which do not currently expose us to a sufficient degree of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving our close attention.

 

Liabilities: Total liabilities increased $11.5 million, or 4.3% to $280.7 million at March 31, 2021, primarily as a result of increases in deposits. Deposits increased $13.3 million or 6.3% to $225.5 million at March 31, 2021, while advances decreased $1.5 million or 2.8% to $53.2 million at March 31, 2021.

 

Shareholders’ Equity: At March 31, 2021, the Company’s shareholders’ equity totaled $51.9 million, a decrease of $21,000 or 0.0% from the June 30, 2020 total. The change in shareholders’ equity was primarily associated with common shares purchased by the Company to hold as treasury shares, and net profits for the period less dividends paid on common stock.

 

The Company paid dividends of $1.0 million or 92.2% of net income for the nine-month period just ended. On July 7, 2020, the members of First Federal MHC again approved a dividend waiver on annual dividends of up to $0.40 per share of Kentucky First Federal Bancorp common stock. The Board of Directors of First Federal MHC applied for approval of another waiver. The Federal Reserve Bank of Cleveland has notified the Company that it did not object to the waiver of dividends paid by the Company to First Federal MHC, and, as a result, First Federal MHC will be permitted to waive the receipt of dividends for quarterly dividends up to $0.10 per common share through the third calendar quarter of 2021. Management believes that the Company has sufficient capital to continue the current dividend policy without affecting the well-capitalized status of either subsidiary bank. Management cannot speculate on future dividend levels, because various factors, including capital levels, income levels, liquidity levels, regulatory requirements and overall financial condition of the Company are considered before dividends are declared. However, management continues to believe that a strong dividend is consistent with the Company’s long-term capital management strategy. See “Risk Factors” in Part II, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended June 30, 2020 for additional discussion regarding dividends.

 

33

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Nine-month Periods Ended March 31, 2021 and 2020

 

General

 

Net income totaled $1.1 million or $0.14 diluted earnings per share for the nine months ended March 31, 2021, an increase of $406,000 or 56.2% from net income of $722,000 or $0.09 diluted earnings per share for the same period in 2020. The increase in net income on a nine-month basis was primarily attributable to higher net interest income, higher non-interest income and lower non-interest expense, which were partially offset by increased provision for loan losses and increased provision for income tax.

 

Net Interest Income

 

Net interest income before provision for loan losses increased $266,000 or 3.8% to $7.3 million for the nine-month period just ended. Interest income decreased by $825,000, or 8.4%, to $9.0 million, while interest expense decreased $1.1 million or 39.7% to $1.7 million for the nine months ended March 31, 2021.

 

The decrease in interest income period-to-period was due primarily to a decrease in the average rate earned on interest-earning assets, as the average volume of interest-earning assets increased period-to-period. The average rate decreased 50 basis points to 3.77% for the recently-ended nine-month period compared to the prior year period, while the average balance of interest-earning assets increased $11.6 million or 3.8% to $317.1 million for the nine months ended March 31, 2021. Interest income on loans decreased $566,000 or 6.0% to $8.8 million, due primarily to a decrease in the average rate earned on the loan portfolio, which decreased 44 basis points to 4.00%, while the average balance increased $12.7 million or 4.5% to $294.8 million for the nine-month period ended March 31, 2021. Interest income from interest-bearing deposits and other decreased $242,000 or 66.5% to $122,000 for the nine months just ended due primarily to a decrease in the average rate earned, which decreased 146 basis points to 0.75% for the recently-ended period compared to the period a year ago.

 

The decrease in interest expense was due primarily to a decrease of 59 basis points on the average rate paid on funding sources, which totaled 0.84% for the nine months ended March 31, 2021. The Company’s interest-bearing liabilities have repriced quickly as we are able to take advantage of the low interest rate environment that currently exists. Interest expense on deposits decreased $497,000 or 27.2% to $1.3 million for the nine months ended March 31, 2021, while interest expense on borrowings decreased $594,000 or 64.1% to $333,000 for the same period. The decrease in interest expense on deposits was attributed primarily to a decrease in the average rate paid on interest-bearing deposits, which decreased 40 basis points to 0.85% for the recently ended period, while the average balance of interest-bearing deposits increased $14.2 million or 7.3% to $208.9 million for the most recent period. The decrease in interest expense on borrowings was attributed to both to a lower average rate paid on the borrowings and a lower average balance of borrowings period to period. The average balance of borrowings outstanding decreased $6.0 million or 9.8% to $55.2 million for the recently ended nine-month period, while the average rate paid on borrowings decreased 121 basis points to 0.81% for the most recent period.

 

Net interest spread increased from 2.84% for the prior year semiannual period to 2.93% for the nine-month period ended March 31, 2021.

 

Provision for Losses on Loans

 

Provision for loan losses increased $128,000 for the nine-month period ended March 31, 2021, and totaled $192,000 compared to $64,000 for the prior year semi-annual period. The higher provision was primarily in response to the higher level of loans maintained in the portfolio as well as increased levels of multi-family and commercial real estate loans, which carry somewhat more risk. While management continues to consider the potential impact of COVID-19 on asset quality, no adjustment to the allowance for loan losses has been made for that specific reason. Near the onset of the pandemic, the Company granted deferrals to borrowers representing $18.1 million in loans, but the overwhelming majority of those borrowers have resumed regular payments. Further, 95% of the Company’s loan portfolio is secured by residential real estate, which has performed well during the pandemic.

 

34

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Nine-month Periods Ended March 31, 2021 and 2020 (continued)

 

Non-interest Income

 

Non-interest income increased $200,000 or 85.8% to $433,000 for the nine months ended March 31, 2021, compared to the prior year period, primarily because of an increase in net gains on sales of loans. Net gain on sales of loans increased $205,000 to $280,000 for the recently-ended nine-month period. In the current interest rate environment, many borrowers are choosing long-term, fixed rate loans, which the bank usually sells to the Federal Home Loan Bank of Cincinnati (“FHLB”). An increase in volume of these loans sold was responsible for the increase in gain on sale of loans.

 

Non-interest Expense

 

Non-interest expense decreased $185,000 or 2.9% and totaled $6.1 million for the nine months ended March 31, 2021, primarily due to cost-saving measures implemented by management.

 

Employee compensation and benefits decreased $141,000 or 3.4% to $4.0 million primarily due to lower employee compensation. The Banks were operating with fewer full-time equivalent employees in the nine-month period just ended compared to the prior year period. Also contributing to lower compensation cost was an increase in the number of loans originated in the recently-ended period compared to the prior year period. The Banks are required to defer a portion of the costs associated with loan originations and those costs are primarily related to personnel costs. Somewhat offsetting the decreases in other employee compensation and benefits expense was an increase in contributions to the Company’s Defined Benefit (“DB”) pension plan. DB pension contributions increased $38,000 or 5.5% to $720,000 for the nine-month period recently ended compared to the prior year period. Higher DB pension contributions were a result of higher administrative fees and Pension Benefit Guarantee Corporation premiums, as the Company’s DB plan was frozen effective April 1, 2019. Other non-interest expense decreased $68,000 or 12.6% to $472,000 for the nine months ended March 31, 2021, primarily due to lower general insurance expenses, discretionary employee and meeting expenses, regulatory assessments and general loan expenses. Franchise and other taxes decreased $64,000 or 33.0% and totaled $130,000 for the nine months ended March 31, 2021, as the Banks became subject to Kentucky corporate income tax on its earnings rather than being subject to the Kentucky Savings and Loan tax effective January 1, 2021. Voice and data communications expense decreased $48,000 or 37.5% to $80,000 for the nine-month period just ended as upgraded technology savings were realized.

 

Somewhat offsetting the decreases in various non-interest expense items were increases in FDIC insurance premiums and data processing expenses. FDIC insurance premiums increased to $129,000 for the nine months ended March 31, 2021. In the prior year semi-annual period the Banks were able to utilize their Small Bank Assessment Credits (“SBAC”). The SBAC were depleted in the quarterly period ended June 30, 2020. Data processing increased $42,000 or 10.8% to $430,000 for the period just ended as core processing costs increased and the Company expanded its technology infrastructure.

 

Income Tax Expense

 

Income tax expense increased $117,000 or 66.5% to $293,000 for the nine months ended March 31, 2021, compared to the prior year period. The effective tax rates for the nine-month periods ended March 31, 2021 and 2020, were 20.6% and 19.6%, respectively.

 

35

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Three-month Periods Ended March 31, 2021 and 2020

 

General

 

Net income totaled $473,000 or $0.06 diluted earnings per share for the three months ended March 31, 2021, an increase of $233,000 or 97.1% from net income of $240,000 or $0.03 diluted earnings per share for the same period in 2020.

 

Net Interest Income

 

Net interest income before provision for loan losses increased $125,000 or 5.4% to $2.4 million for the three-month period just ended, as interest expense decreased at a faster pace than interest income decreased for the quarter just ended. Interest income decreased by $265,000, or 8.3%, to $2.9 million, while interest expense decreased $390,000 or 44.2% to $492,000 for the three months ended March 31, 2021.

 

Interest income on loans decreased $205,000 or 6.6% to $2.9 million, due primarily to a decrease in the average rate earned on the loan portfolio. The average rate earned on the loan portfolio decreased 53 basis points to 3.88%, while the average balance increased $16.9 million or 6.0% to $298.8 million for the three-month period ended March 31, 2021. Interest income from interest-bearing deposits and other decreased $54,000 or 58.7% to $38,000 for the three months just ended due to a decrease in the average rate earned, which decreased 95 basis points to 0.68% for the recently-ended period compared to the period a year ago.

 

Interest expense on deposits decreased $241,000 or 38.4% to $387,000 for the three months ended March 31, 2021, while interest expense on borrowings decreased $149,000 or 58.7% to $105,000 for the same period. The decrease in interest expense on deposits was attributed primarily to a decrease in the average rate paid on interest-bearing deposits, which decreased 53 basis points to 0.74% for the recently ended period, while the average balance of interest-bearing deposits increased $11.6 million or 5.9% to $210.1 million for the most recent period. The decrease in interest expense on borrowings was attributed to both to a lower average rate paid on the borrowings and a lower average balance of borrowings period to period. The average balance of borrowings outstanding decreased $306,000 or 0.5% to $57.0 million for the recently ended three-month period, while the average rate paid on borrowings decreased 103 basis points to 0.74% for the most recent period.

 

Net interest spread increased 10 basis points from 2.82% for the prior year quarterly period to 2.92% for the three-month period ended March 31, 2021.

 

Provision for Losses on Loans

 

There was no provision for loan losses for the three-month periods ended March 31, 2021 or 2020. The Company had recorded higher provision earlier in the fiscal year in response to the higher level of loans maintained in the portfolio as well as increased levels of multi-family and commercial real estate loans, which carry somewhat more risk.

 

36

 

 

Kentucky First Federal Bancorp
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

 

Comparison of Operating Results for the Three-month Periods Ended March 31, 2021 and 2020 (continued)

 

Non-interest Income

 

Non-interest income increased $101,000 or 124.7% to $182,000 for the three months ended March 31, 2021, compared to the prior year period, primarily because of an increase in net gains on sales of loans. Net gain on sales of loans increased $90,000 to $125,000 for the recently-ended three-month period over the prior year amount. In the current interest rate environment, many borrowers are choosing long-term, fixed rate loans, which the Banks usually sell to the FHLB. An increase in volume of these loans sold was responsible for the increase in gain on sale of loans.

 

Non-interest Expense

 

Non-interest expense decreased $87,000 or 4.1% and totaled $2.0 million for the three months ended March 31, 2021, primarily due to cost-saving measures implemented by management.

 

Franchise and other taxes decreased $65,000 or 100.0% for the three months ended March 31, 2021, as the Banks became subject to Kentucky corporate income tax on its earnings rather than being subject to the Kentucky Savings and Loan tax effective January 1, 2021. Other non-interest expense decreased $21,000 or 12.4% to $149,000 for the three months ended March 31, 2021, primarily due to lower discretionary employee and meeting expenses, and expenses associated with management of the loan portfolio. Employee compensation and benefits decreased $17,000 or 1.2% to $1.4 million primarily due to lower employee and director compensation as well as higher deferred compensation cost attributed to an increase in the number of loans originated during the period. The Company’s DB pension contributions decreased $18,000 or 7.1% to $234,000 for the three-month period recently ended compared to the prior year period. Lower DB pension contributions for the quarter were a result of lower total costs than originally anticipated.

 

Somewhat offsetting the decreases in various non-interest expense items was an increase in FDIC insurance premiums, which totaled $41,000 for the three months ended March 31, 2021, compared to zero for the prior year period due to a lack of SBAC credits for the current period.

 

Income Tax Expense

 

Income tax expense increased $80,000 or 137.9% to $138,000 for the three months ended March 31, 2021, compared to the prior year period. As described herein, the Banks became subject to Kentucky corporate income tax on its earnings rather than being subject to the Kentucky Savings and Loan tax effective January 1, 2021. The effective tax rates for the three-month periods ended March 31, 2021 and 2020, were 22.6% and 19.5%, respectively.

 

37

 

 

Kentucky First Federal Bancorp

 

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

 

This item is not applicable as the Company is a smaller reporting company.

 

ITEM 4: Controls and Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, and have concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

Based upon their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have also concluded that there were no significant changes during the quarter ended March 31, 2021 in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

38

 

 

Kentucky First Federal Bancorp

 

PART II

 

ITEM 1. Legal Proceedings

 

None.

 

ITEM 1A. Risk Factors

 

There have been no material changes in the risk factors disclosed in Part I, “Item 1A- Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, as updated by the disclosure in Part II, Item 1A-Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, which risk factors could materially affect our business, financial condition or future results. The risks described therein are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(c) The following table sets forth information regarding Company’s repurchases of its common stock during the quarter ended March 31, 2021.

 

Period  Total # of
shares
purchased
   Average
price paid
per share
(including
commissions)
   Total # of
shares
purchased
as part of
publicly
announced
plans or
programs
   Maximum #
of shares
that may
yet be
purchased
under the
plans or
programs
 
January 1-31, 2021      $        150,000 
February 1-28, 2021   10,000   $6.65    10,000    140,000 
March 1-31, 2021   --   $--    --    140,000 

 

 

(1) On February 3, 2021, the Company announced that it had substantially completed its program initiated on December 19, 2018 to repurchase of up to 150,000 shares of its common stock and that it was initiating a new stock repurchase plan in which the Board of Directors authorized the purchase of up to 150,000 shares of its common stock.

 

ITEM 3. Defaults Upon Senior Securities

 

Not applicable.

 

ITEM 4. Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5. Other Information

 

None.

 

39

 

  

ITEM 6. Exhibits

 

3.11   Charter of Kentucky First Federal Bancorp
3.22   Bylaws of Kentucky First Federal Bancorp, as amended and restated
3.33   Amendment No. 1 to the Bylaws of Kentucky First Federal Bancorp
3.44   Amendment No. 2 to the Bylaws of Kentucky First Federal Bancorp
4.11   Specimen Stock Certificate of Kentucky First Federal Bancorp
31.1   CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0   The following materials from Kentucky First Federal Bancorp’s Quarterly Report On Form 10-Q for the quarter ended March 31, 2021 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows: and (v) the related Notes.

 

(1) Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-119041).
(2) Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the Year Ended June 30, 2012 (File No. 0-51176).
(3) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed August 25, 2017 (File No. 0-51176).
(4) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed September 28, 2020 (File No. 0-51176).

 

40

 

 

Kentucky First Federal Bancorp

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    KENTUCKY FIRST FEDERAL BANCORP
       
Date: May 17, 2021   By: /s/ Don D. Jennings
      Don D. Jennings
      Chief Executive Officer
       
Date: May 17, 2021   By: /s/ R. Clay Hulette
      R. Clay Hulette
      Vice President and Chief Financial Officer

 

 

41